Chairman's statement

Jens Montanana, Logicalis Chairman and Chief Executive of Datatec, commented:

I am delighted to report that Logicalis has delivered a record set of results and is well placed for the future. Our full year results show revenues rose a respectable 9% and almost all of it, 8%, was organic. Our EBITDA margins also rose for the fourth consecutive year and almost reached 6%. It was particularly pleasing to see a significant turnaround in the UK and the US, which make up the vast majority of the European and North America segments respectively. There were some challenges in the Asia Pacific region which was dragged down by the lower contribution from Australia, while Latin America’s progress was slowed by weaker local currencies versus the US dollar. However, overall we are very pleased with the generally robust performance in all areas.

Through recent acquisitions we have extended the footprint of Logicalis in to new markets and added impetus in some existing markets. Through the acquisition of the four European operations of 2e2, we now have operations in Spain, the Netherlands, Ireland and the Channel Islands to complement our existing presence in the UK and Germany, and from this year we will be reporting Europe as a single segment for Logicalis.

Our income statement showed positive results across all areas. Gross margin growth outstripped the increase in operating costs and EBITDA rose 17% to $79 million. Our EBITDA margin has increased, as both geographic spread and our services mix continue to improve. Even more impressively, our operating profit rose by 28%.

Our revenue split across regions has shown no real change over the last year. Europe last year was comprised mainly of the UK, with a small portion of the 24% derived from Germany. Latin America remains the largest region continuing to be driven by further expansion of telecommunications and network infrastructure.

We are now in 24 markets in total: in 10 countries across Latin America from Argentina to Mexico, with Brazil still by far the largest, in six countries in Europe, in the USA and in seven countries across Asia Pacific.

Our services business continues to grow steadily from under 20% to approaching our longer term target of 30% of total revenues and we have achieved a consistent and steady improvement in our product and services mix. The largest driver of this has been our maintenance and managed services activities which this year will exceed $250 million and could at some point be over 20% of our revenues.

Overall, our services grew by 14% and the improving services mix has been a major contributor not only to margin stability but also to the predictability of the business over the cycle.

Cisco remains the dominant vendor category in our product mix, providing not just networking equipment but solutions for data centres (such as servers and switches), security and collaborative voice and video applications. We do, however, expect our IBM business to grow this year based on the acquired businesses in Europe.

Overall we do not expect a radical change to our product vendor mix as we remain focused as a system integrator on enterprise networks and data centres. During the financial year, Logicalis completed two acquisitions to expand its operations in Australia and South America. In June 2012, Logicalis Australia acquired Corpnet, a Brisbane-based solution provider, from e-Business Systems Ltd, which provides data centre, cloud and managed services solutions to the Queensland mid-sized and enterprise markets.

In November 2012, Logicalis Latin America increased its footprint in the region through the acquisition of the Colombia and Ecuador operations of Cibercall.

Just after the end of our financial year, Logicalis made a major acquisition to expand its European footprint. In March 2013, Logicalis acquired the four European subsidiaries of 2e2, to include the Spanish and Irish systems integration businesses, operating under the Morse banner; the Channel Islands business (Jersey and Guernsey) and 2e2’s operation in the Netherlands which is a leading IT service management (ITSM) consultancy, also providing ITSM-as-a- Service offerings.

Markets

We are not yet seeing any obvious signs of recovery. Companies are continuing to cut costs and improve their balance sheets and are only investing in IT where compelling return on investment or competitive advantage can be achieved.

However, we believe we are in an environment where the window for mergers and acquisitions is becoming attractive in this sector and our relative performance continues to surpass that of many of our peers, showing our financial strength is a significant asset.